Employee “Sweethearting” Costing Business Billions

A surprising number of employees are giving away the store, according to new research from Michigan State University. The study shows that nearly 70 per cent of workers admit to “sweethearting”. That’s the practice of giving free goods and services to customers. The cost to businesses is $80 billion a year.

Clay Voorhees conducted the study. He’s an assistant professor of marketing at MSU. Voorhees interviewed nearly 800 people in service jobs, promising to keep their names confidential. Voorhees expected to find this behavior in bars and restaurants but was surprised to find it in a number of industries, including insurance.

CLAY VOORHEES: There were some unique drivers of this particular behavior because it’s a very social behavior. It’s not a typical theft scenario, where you’re stealing for your own benefit. It’s much more Robin Hood-esque and altruistic, where employees are taking all the risk, but receiving none of the direct benefits. We noticed key drivers were things such as reciprocity, where there’s an informal network among service employees. It’s almost a tit for tat type of exchange, where I come in to your place of work and you hook me up with free services, then the same will happen when you show up as a customer in my establishment. In addition to that, we noticed obviously financial gain was a direct motivator, so people could increase their tips for unfair pay, if they gave away free food and drinks. Probably the most interesting thing is a lot of these things are hard to challenge. The threat of firing an employee, the threat of sanctions, actually had very limited effect on preventing the behavior.

GRETCHEN MILLICH: That is kind of surprising, because you would think the fact that it’s illegal, and that they could lose their job over it, would deter people from doing it.

VOORHEES: Yes, when you look at the threat of firing and the risk of getting caught in isolation, it’s a big deterrent. But once you start accounting for these other factors, such as their need for social approval, the extra money they can make, the organizational norms, or how accepted it is in the company, all of a sudden, the threat of punishment and those effects go away. So, in isolation they’re great, but a lot of prior studies hadn’t taken this broader look, and we think as a result overlooked some of the complexity of this particular behavior.

MILLICH: You were mentioning that this goes beyond restaurants and bars. What’s one of the strangest things or one of the most expensive things you’ve found that employees were giving away?

VOORHEES: The most outlandish was in insurance, where people were falsifying insurance claims and really inflating those. Another was a worker in an office at a superstore who would change the UPC codes for pencils and put them on everything all the way up to $200 merchandise. Their friends would come in and they’d scan, let’s say, a new PDA, and they’d get charged 39 cents. The UPC code would read as it went across the cash register, they’d hand him a dollar bill, and they’d walk out with the much higher end merchandise.

MILLICH: What do you suggest businesses do to try to stop employees from doing this?

VOORHEES: There’s short term and long term. We know that about two-thirds of employees are engaging in it, so it’s a majority. In the short run, an easy thing to do is try to educate employees on the real cost of this. I think a lot of employees fail to understand how small profit margins are in a lot of these industries, and what seems like small tokens of friendship and gratitude can actually cost the firm substantially. There’s research that shows if you remind employees of their ethical obligations with just a sign, it can actually lead to a drastic reduction in deviant behavior. So, simply having a little bit of a reminder daily, through education or some signage, might lead to a drop down. In the long run, we think it’s more screening and changing the organizational norms. We can go through and, with a few of the personality traits we identified, add 3 or 4 new questions to an employee screening document, and screen out the at-risk employees. For employees who are high in risk seeking and higher in need for social approval, it doesn’t necessarily mean they are going to engage in this behavior, but they’re more at risk to do it, so why take that chance? Just pull them out of your pool. By doing that, over time, that 33 per cent minority that doesn’t engage in the behavior can slowly become a slim majority. Once the majority doesn’t engage in it, the norms in the company will change, and all of a sudden the behavior will start to decrease. It will never go away. One thing we’ve been looking at now is trying to understand some of the pressures the employees experience. We painted the employees as the villains in this study. Ideally, they shouldn’t do this behavior, but there are a lot of working conditions that may be triggering it, and we’re trying to understand that situation a little bit better.